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February 1, 2021
In April 2003, Hanger Holdings (HH) entered into a written agreement governed by English law with Perlake Corporation SA, a Uruguayan company, pursuant to which HH agreed to transfer its online gaming business trading under the domain name “blackjack.com” (the Domain Name) to Perlake. HH also agreed to transfer the website from which it conducted the business, the Domain Name, its customer data and the goodwill in the business associated with the Domain Name (referred to by the parties as the Trade Mark). HH was to be paid consideration of US$250,000 and to receive a percentage of revenue generated by the business by way of commission.
Pending payment of the $250,000, the Domain Name and the Trade Mark were held by a firm of solicitors acting as escrow agents. The payment was made in 2005 and the Domain Name and Trade Mark were assigned to Perlake the same year.
HH said that Perlake never paid it any commission on income derived from the online business as required by the 2003 agreement. The 2003 agreement contained a term providing that HH was entitled to terminate if Perlake committed a material breach. There was a proviso that if the breach was capable of remedy, HH was obliged to give written notice specifying the breach and requiring it to be remedied; if Perlake failed to effect a remedy within 30 days of the notice the agreement would terminate. Thereupon HH would be entitled to all rights in the Domain Name and the Trade Mark.
In August 2018, HH issued proceedings against Perlake seeking a declaration that it had the right to call for the transfer of the legal titles to the Domain Name and the Trade Mark. HH argued that Perlake was in material and irremediable breach of the 2003 agreement, meaning that HH was entitled to terminate pursuant to the terms of the agreement. It had done so by letter dated 5 August 2015, it said, and the 2003 agreement had come to an end on the letter’s deemed dated of service, 11 August 2015. Failing that, HH said, the 2003 agreement was terminated upon service of a later letter dated 14 December 2015. The alleged breaches set out in the letters were Perlake’s failure to keep records of the operation of the business, to provide audited statements and to pay appropriate commission.
Upon termination, HH said that it had become the owner in equity of the Domain Name and the Trade Mark and was therefore entitled to call for the transfer to it of the legal titles. It also argued that no transaction in respect of the Domain Name or Trade Mark since then, even if valid, had disturbed its equitable ownership.
Mr Croft, the sole director and owner of Perlake, denied that Perlake had committed any breach, or that if it had, such breach was neither material nor irremediable, meaning that HH was not entitled to terminate. Mr Croft also said that a domain name was not property in which equitable ownership could arise.
His Honour Judge Hacon held that, on the facts and evidence, Perlake had, as alleged by HH, failed to provide appropriately audited financial statements regarding the business and details of players’ transactions on the website. This undoubtedly had had a serious effect on the benefit that HH was entitled to derive from the performance of the 2003 agreement, as without the information HH could not assess whether it was receiving the correct amount of commission or whether the business truly earned no money such that no commission was due. In HHJ Hacon’s view, the breach was material.
In terms of whether the breach was irremediable, the evidence showed that Mr Croft had failed to keep financial records of the business for a substantial part of the time during which it was conducted and there was no evidence of any alternative source of the relevant financial information. HHJ Hacon found that the failure to supply the financial information to HH could not therefore have been remedied as at August 2015.
Accordingly, the breach was material and irremediable. The agreement was therefore terminated on the deemed dated of service of the letter, 11 August 2015.
As for the Domain name and the Trade Mark, HHJ Hacon said that there was no doubt that a domain name could be freely traded (unlike phone numbers which were not generally bought and sold). The question was whether a domain name was personal property. HHJ Hacon agreed with obiter remarks made in OBG Ltd v Allan  UKHL 21, that a domain name may be intangible property. HHJ Hacon also referred to the Court of Appeal of Ontario’s ruling in Tucows.com Co v Lojas Renner  ONCA 548, which included a detailed review of judicial and academic consideration in several jurisdictions, including England (mentioning OBG), and in which it was held that a domain name did indeed constitute property. HHJ Hacon concluded that a domain name was therefore intangible personal property.
As for goodwill, HHJ Hacon noted that it was well established that goodwill was intangible personal property that could be assigned from one entity to another. Therefore, upon termination of the 2003 agreement, HH had acquired an equitable interest in the Domain Name and the Trade Mark. No transaction or purported transaction since then had deprived HH of that equitable interest. It therefore remained entitled to call for the assignment to it of the legal interest in each of those rights and related relief. (Hanger Holdings v Perlake Corporation SA  EWHC 81 (Ch) (19 January 2021) — to read the judgment in full, click here).